Energy providers criticised over credit checks

Consumers with poor credit histories are being penalised.

Energy companies are running credit checks on their customers which could unfairly penalise them when heating and lighting their homes, the Government's watchdog has warned.

Consumer Focus said that inaccurate data placed on credit records and routine credit checks before people change energy suppliers could unjustly punish those with a poor credit history.

"Energy is an essential service that we all need for our health and wellbeing. It must not be treated the same way as other types of credit, like loans and credit cards," said Dhara Vyas, energy expert at Consumer Focus.

Consumer Focus fears that some customers may end up on expensive prepayment meters because they fail routine credit checks, while others may be forced to pay a security deposit.

The watchdog said that even those customers who have never missed paying an energy bill could end up without access to the cheapest energy tariffs, because they have a poor credit record in other areas.

"Consumer Focus has concerns that this could mean certain consumers cannot easily access special offers, or are not offered the best terms, despite their good payment history," the group said in a report to be published this week.

Prepayment meters, which force customers to pay for their energy in advance, are usually more expensive than the cheapest options such as internet-only energy tariffs. Consumer Focus said it was concerned energy companies would use credit reference data when looking at their current customers, and may force them to move to a prepayment tariff because they had missed credit card payments, for example. "This would be unacceptable if the customer's debts or financial difficulties were unrelated to the supply of energy," the report said.

Most of us now buy our energy in advance, so energy companies run credit checks in the same way as banks and mobile phone companies do. These are done using credit reference agencies – Experian and its two rivals, Equifax and Callcredit. They hold details on almost every citizen in Britain, and every time you apply for a credit card, a bank account, a mobile phone or to rent a house, this information will be called up and used.

Each company uses the information in a different way – a process called "credit scoring" – to decide whether to accept or reject you for credit. The information held by each of the credit agencies is entered by the companies to which the debt is owed.

A spokesman for British Gas, the UK's biggest energy company, said that sharing information with credit reference agencies was "the responsible thing to do".

"It is not in a customer's interests if they are unable to pay their bills," he added. "Access to credit reference information can be beneficial in helping customers who find themselves in financial difficulties.

With a more detailed understanding of a customer's financial situation, we can ensure that we agree repayment plans that are affordable for the individual's circumstances and reduce the chance of repayment difficulties in the future.

"We are completely transparent in how we use credit reference agencies; it is detailed in our terms and conditions and we advise all new customers that we share information and we remind those that are having difficulties with their payments."

However, customers have found – to their cost – that energy companies can get it wrong when they enter debt information into systems. Daisy Martin from Wolverhampton moved house and found that the energy debt the previous owner had run up was transferred to her name. Ms Martin, 20, was forced to ring British Gas several times after being contacted by debt collectors. Even then, amendments were not made correctly and she ended up being pursued by another debt agency.

"I was applying for a job at a bank and they ran a credit check," Ms Martin explained. "I had to tell them about the problems, which just complicated things for me. I think British Gas underestimated me because I am so young, and they kept getting it wrong."

The British Gas spokesman said that Ms Martin's case was "an unfortunate error".

"We apologise sincerely to Ms Martin for not only the original error, but also for not resolving it satisfactorily when she brought it to our attention," the company said. "We have now put this right."

Mr Vyas at Consumer Focus said that inaccurate energy data placed on customer credit reports would "potentially affect consumers' applications for mortgages, loans and credit cards. Before information is shared with any or all CRAs, it is crucial that its accuracy is verified."

"Consumer Focus thinks it is reasonable that energy companies conduct checks to ensure that their customers can and will pay when they are billed for what has been consumed."

Have you had problems with your credit report and your energy company? Contact us at money@telegraph.co.uk